States That Opt-Out Of Medicaid Will Likely Have To Scale Back Benefits, Reimbursements To Providers

The Center on Budget and Policy Priorities’ Edward Park offers this very concise explanation of what would happen if states opt outed of the Medicaid program, sent back the federal matching rate, and tried to stretch their remaining contributions. Remember, these states believe that they can transfer individuals between 100% and 133% of the federal poverty line into the exchanges — where beneficiaries at these income levels would potentially qualify for federal subsidies — and actually save money by covering only the remaining population. Park argues that this will prove impossible:

Since states will be unable to shift most of their Medicaid beneficiaries — and very few of the higher-cost people who constitute the bulk of current spending — into the exchanges, they’d have to somehow make up for the loss of these federal funds.

Unless states were willing to as much as triple their current contributions to the cost of health care, they would have to severely curtail their health care spending.. Many would likely end up eliminating publicly funded coverage for large numbers of low-income children, pregnant women, parents, people with disabilities, and seniors. Most of these people could well end up uninsured

For the people who remained eligible for publicly funded coverage, states might scale back benefits. Possible reductions include benefits that are important to people with disabilities and children with special health care needs, such as mental health care and therapy services, which Medicaid covers but private insurance typically doesn’t. States might also increase cost-sharing charges, which means fewer people would receive needed health care.

And although states have already sharply reduced their reimbursement rates for Medicaid providers (such as doctors and hospitals) to help close their budget deficits, they would have to further lower their rates — at the same time that providers would face rising costs for uncompensated care costs as the ranks of the uninsured swell.

And of course while states would be stretching their state contributions, the federal government would have to spend more to cover the Medicaid population (assuming they could qualify for subsidies). The infusion of Medicaid patients could also tilt the composition of the risk pools and further increase premiums.


Texas Gov. Rick Perry (R) has brought Medicaid opt-out to the national stage, but it’s on the very periphery of conservative thought. Republicans with serious presidential ambitions pay lip service to condemning large federal outlays but have yet to endorse or propose anything this drastic. Gov. Tim Pawlenty (R-MN), for instance, a fairly cautious and opportunistic presidential contender is not only not talking about leaving Medicaid, but he recently accept $263 million in federal dollars to bolster the state’s program. Perry, for his part, has yet to propose how Texas would efficiently cover the remaining beneficiaries in the Medicaid program.